Among the big tech news items last week was Microsoft’s announcement that they were going to cut 18,000 employees and restructure the company. The big cuts seem to be coming from the recently-acquired Nokia handset business. The headlines around this were the discontinuation of the Nokia X phone which ran Android. This is not surprising. It makes little sense for Microsoft to be pushing a Google-based product. But buried in the news, was what I consider a much more important announcement, Microsoft will also discontinue Nokia’s Series 40 phones. This has huge implications. I am still digging into this a bit, so I am not 100% clear on what is getting cut, but if true, I think Microsoft may be making a very far-reaching mistake.
So first, a couple caveats. There is no official confirmation yet abut this. Most of the blog reports about this refer to a post on BGR India, who claims to have a copy of an internal memo from the head of the Nokia’s feature phone business. The Verge also confirms this but provides little further detail. I delayed a little posting this, waiting to see if any harder news emerged, but so far nothing. My best guess is that this is true, it fits with the broader strokes in their CEO’s memo.
As I see it, the heart of the problem is Series 40. This is the tried and true operating system (OS) that runs low-end Nokia phones. In my opinion, Series 40 is the root cause of Nokia’s success in the 90’s and 00’s. For a very long time, it was the simplest and most intuitive mobile phone OS on the market, in a time when no one really appreciated the value of a mobile OS. My joke is that the killer app for mobile phones used to be the Snake game that came standard with Series 40, but more accurately it was the high degree of user friendliness that Series 40 provided. This catapulted Nokia into the leading market share position they held for the first decade of mobile.
That was then, and many people would argue that a pre-2007 (i.e. pre iPhone) feature phone OS is of no use in today’s smartphone world. But there are still 6 billion mobile phones out there, of which about 4.5 billion are feature phones and roughly a third of those run Series 40. We can debate the math a bit, but I do not think it is a stretch to say that there are still at least a billion Series 40 phones out there. That installed base rivals Android, and is far larger than the iOS base.
It is obvious that Series 40 is not a viable platform for future phones. Sticking with Series 40 as long as they did eventually brought down Nokia. But that is not the same thing as saying now is the time to kill the platform. From the memos quoted on the blogosphere, it seems like Microsoft is now cutting all investment in Series 40 with a goal of shutting down all Series 40-based phone platforms within 18 months.
Now maybe we are missing a piece, but this sounds like a “cold turkey”, hard stop to Series 40. I think a smarter plan would be to keep Series 40 going for a few more years, and use that as the transition platform to gradually move users to Windows Phone. This seems to be an abrupt end, where a smoother transition would make more sense.
The risk goes back to that statistic above, the fact that most of the world’s mobile phone users are still on feature phones. They may not own Series 40 devices anymore (having long since moved to Mediatek China OEM devices) but they are still very familiar with Series 40.
My guess is that when you look at Nokia’s numbers, they are still spending an enormous sum on marketing and support for Series 40. From a cost-cutting perspective, the decision makes sense. However, I think this misses a key strategic nuance. The Nokia brand is still worth a considerable amount. Consumers know Nokia and are familiar with Series 40. Having the old OS stick around a little while longer would seem to give Microsoft a big edge up in terms of distribution and brand reach. But the old Nokia has a massive manufacturing and logistics complex. For a Microsoft that seems to be refocussing back to software, ditching this must seem be a big temptation.
The flaw in this logic is that much of the world is still uncharted territory. Android seems to have the advantage here, but that is not a foregone conclusion. Microsoft should instead look to unload much of the Nokia manufacturing assets but license out Series 40 to Mediatek or some of its customers. Better yet, keep the whole thing in-house and use that as a springboard to eventually bring a few billion mobile users back into the Microsoft fold. Actually, to be precise, most of the people on Series 40 today have probably never owned or used a Microsoft product, so this is a way to reach a whole new audience.
Seen from a Developed World perspective, Series 40 makes no sense. But that is not where the fight is, at least that is not where Microsoft can quickly (or ever) win a fight. Better to save some of the Nokia supply chain baggage and Series 40, and use that as a very powerful springboard to expand in developing markets. I recognize that this is still very far from the core of what Microsoft wants to be, but if they already have the assets better to hold on to them. From an outside perspective, Microsoft appears to be throwing away something that could eventually be very important to them.
Put another way, it makes no sense that Vertu phones will be around longer than Series 40.
Vertu